Software Delivery Quickly Transitioning To Software-as-a-Service: Report

Sales of Software-as-a-Service applications hit $13.1 billion in 2009 and market researcher IDC is projecting that market will reach $40.5 billion by 2014 – a compound annual growth rate of 25.3 percent.

Thirty-four percent of all new business software purchases will be consumed through SaaS by 2014, according to IDC, and SaaS delivery will make up about 14.5 percent of all spending for software worldwide.

“The SaaS model has become mainstream, and is quickly coming to dominate the planning – from R&D, to sales quotas, to partnering, channels and distribution – of all software and services vendors,” said Robert Mahowald, vice president of SaaS and cloud computing services at IDC, in a statement.

Channel partners mulling if and when to make the transition to working with on-demand software have to consider more than customer buying trends; there just won’t be that much new software being offered by vendors through traditional on-premise, perpetual-license delivery models, according to the study.

As early as 2012 more than 85 percent of new software companies coming to market will be developing their product around the SaaS delivery model, while less than 15 percent of new software companies will be shipping their applications as packaged CDs. And by 2014 even established ISVs will be on the SaaS bandwagon, delivering 65 percent of their new products as on-demand services, according to IDC.

SaaS-derived revenue will account for nearly 26 percent of net new growth in the software market in 2014, IDC said. But the shift to SaaS is already having an impact on traditional perpetual licensing models: license revenue will decline nearly $7 billion worldwide this year in what IDC called “a permanent change in the software licensing regime.”

While application software such as Salesforce.com’s customer relationship management applications dominate the SaaS market today, the product mix is shifting more to infrastructure, software development and Platform-as-a-Service offerings. By 2014 applications will account for just over half of all SaaS spending.

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